Moutai vs. Wuliangye_ We Expect Greater Divergence

Summary of Conference Call Notes Industry Overview - Industry: Consumer Staples - Companies Discussed: Kweichow Moutai (Moutai) and Wuliangye Yibin (WLY) Key Points on Kweichow Moutai (Moutai) 1. Channel Adjustments: Moutai's recent strategy to focus on large distributors has stabilized the price of Feitian, positively impacting Moutai's share price [1][2] 2. Management Goals: Moutai's management aims to stabilize Feitian prices by 2025, with recent visits to 15 provinces to engage with distributors [2] 3. Earnings Forecasts: Moutai's earnings forecasts for 2025/26 have been trimmed by 5% and 9% respectively, but are still 3-5% higher than consensus estimates [4] 4. Cost Management: The company is expected to maintain superior cost and operational expense management as distributors regain control over direct-to-consumer (DTC) sales [4] 5. Price Stability Confidence: There is increased confidence that Moutai will stabilize or potentially raise Feitian prices moving forward [4] Key Points on Wuliangye Yibin (WLY) 1. E-commerce Impact: WLY is facing significant disruptions from e-commerce, with smaller distributors reselling inventory online due to dissatisfaction with price hikes and low rebates [3] 2. Free Cash Flow (FCF) Concerns: WLY's estimated FCF for 2024 is projected at RMB30 billion, a 20% decrease year-over-year, raising concerns about its recovery capabilities [5] 3. Distributor Health: There are strong concerns regarding WLY's distributor margins and overall health, which may necessitate supply cuts or special rebates to stabilize pricing [5] 4. Brand Equity Risks: WLY's brand equity is at risk due to unauthorized reselling activities, which could further complicate pricing strategies [5] 5. Earnings Forecasts: WLY's earnings forecasts have been cut, with a new price target set at RMB100, which is 6-12% lower than consensus estimates [5] Additional Insights - Market Divergence: The report anticipates a widening performance gap between Moutai and WLY, with Moutai expected to outperform WLY in the near future [1] - Management Engagement: Moutai's proactive engagement with distributors is seen as a positive step towards stabilizing market sentiment and pricing [2] - Model Updates: The report includes updated models reflecting the latest results for both companies, indicating a cautious outlook for WLY compared to Moutai [4][5]